Unpredictable inflation and borrowing money

  • Thread starter rootX
  • Start date
  • #1
378
2

Main Question or Discussion Point

Is it true that we should borrow money during high inflation periods and lend during deflation periods?
 

Answers and Replies

  • #2
mgb_phys
Science Advisor
Homework Helper
7,774
12
Yes (assuming the interest rates don't keep up.)

Inflation effectively destroys debt - that's why the rich and banks object to it so much.
My parents bought a house in the early 70s for what would now be a months salary.
 
  • #3
21
0
well, that is an oversimplification, but essentially true. inflation does erode debt, but deflation increases the burden of debt, because you would owe more in terms of purchasing power.
 
  • #4
378
2
How true? I know that US government has inflation-indexed bonds but are loans interest also work like that?

Does that also mean if banks sense that inflation is coming, they would stop lending money? Or, they will just raise the interest rates?
 
  • #5
CRGreathouse
Science Advisor
Homework Helper
2,820
0
How true? I know that US government has inflation-indexed bonds but are loans interest also work like that?

Does that also mean if banks sense that inflation is coming, they would stop lending money? Or, they will just raise the interest rates?
They would raise the rates. This would indirectly cause them to lend less.
 
  • #6
Colin Trunt
Is it true that we should borrow money during high inflation periods and lend during deflation periods?


It all depends on your personal circumstances really.
If the real interest rate is low (bank rates - inflation) or negative you may as well spend.
If it is high saving looks a good option.
A lot depends on what you want to buy and what future prices are likely to be.
 

Related Threads for: Unpredictable inflation and borrowing money

  • Last Post
Replies
13
Views
2K
  • Last Post
Replies
5
Views
2K
  • Last Post
2
Replies
25
Views
2K
Replies
26
Views
2K
  • Last Post
Replies
3
Views
4K
  • Last Post
Replies
4
Views
2K
Replies
22
Views
3K
  • Last Post
Replies
5
Views
526
Top